UK Government borrowing reached £20.2 billion in April, exceeding forecasts and marking the fourth-highest April figure on record, according to the Office for National Statistics (ONS).
At the same time, the yield on the UK 30-year gilt rose to 5.543 per cent – its highest level since 1998 – reflecting growing concerns over Government debt and inflation.
The rise was driven by a £4.2 billion year-on-year rise in central Government spending. The increase was fuelled by higher public sector wages and ongoing cost pressures from inflation.
At the same time, bond markets are flashing warning signs. The yield on UK 30-year gilts has climbed to its highest level in over 25 years, following the sharpest monthly rise in inflation since October 2022.
The rising UK yields will add to pressure on the UK government, which is already challenged by tight public finances and a weakening growth outlook.
Experts have warned that with the low growth outlook “it is almost impossible for the Chancellor to balance public spending and revenue without growth-inhibiting tax raids.”
The Office for Budget Responsibility has warned that annual interest payments on the national debt could top £100 billion until the end of this Parliament, a significant and growing strain on public finances. April’s borrowing figure reflects the gap between Government spending and revenue, the latter largely dependent on tax receipts.
The Chancellor now faces a difficult balancing act of meeting her fiscal rule of matching day-to-day spending with revenue by 2029–30, while also pledging to improve public services and drive economic growth.
Chancellor Rachel Reeves is attempting to grow the economy and balance the books GB News Professor Joe Nellis is economic adviser to MHA, the accountancy and advisory firm said: “The Chancellor should scrap her fiscal rules if she is serious about growth.
“Public sector spending has continued to significantly exceed income in April, leading to a spending deficit covered by borrowing of £20.2bn. This is an increase on the £16.4bn recorded in April and is a concerning figure for the Chancellor as it continues to put strain on her slim fiscal headroom.”
Despite hopes for a boost to the economy following this week’s UK-EU deal, growth forecasts remain low.
Nellis warned: “Low growth results in lower tax revenues and lower Government income, making it almost impossible for the Chancellor to balance public spending and revenue without growth-inhibiting tax raids. Of the Government’s two economic goals — cutting the deficit and creating a growing economy — they must prioritise growth.
“To do this, the Chancellor should scrap her fiscal rules to enable public and corporate investment and focus on recalibrating the economy onto a positive path to growth.”
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Craig Inches, head of rates and cash at Royal London Asset Management, said the surge in long-dated gilt yields was also fuelled by concerns about UK growth and the possibility that the Government would have to issue more debt in response.
He said: “It’s a fear that the only option that governments have is to turn on the fiscal taps.”
ONS deputy director for public sector finances Rob Doody said: “At £1 billion higher than the same time last year, this April’s borrowing was the fourth highest for the start of the financial year since monthly records began more than 30 years ago.
“Receipts were up on last April, thanks partly to the higher rate of National Insurance contributions. However, this was outweighed by greater spending, due to rising public services’ running costs and increases in many benefits and state pensions.”
The UK government borrowed around £151.9 billion in the 2024/25 financial year. This is less than half the £314.6 billion borrowed in 2020/21, when pandemic lockdowns slashed tax revenues and triggered a surge in public spending to support services and households.
The Government raised £4 billion this week by selling 30-year bonds, and demand looked strong as investors placed £75 billion in orders, thanks to a high 5.4 per cent interest rate. But experts say this headline success hides a worrying trend.
The issue is that long-term investors, like pension funds and insurers, aren’t as keen on buying these ultra-long bonds as they used to be. Many already hold enough long-dated debt and don’t want more. At the same time, new buyers aren’t stepping in, even with higher returns on offer.
That’s a problem because the UK relies on selling long-term debt to spread out the cost of borrowing. If fewer investors want to buy it, the Government could face higher borrowing costs in the future or struggle to sell as much as it needs.
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